Power play: Private players plug into the M&A route to scale up
The recent spate of acquisitions in the power sector indicates that private players such as the Adanis and JSW Energy are positioning themselves to ride the growth in demand for power as GDP picks up. The companies’ ability to raise funds has given them an edge over rival players. The Adani Group, after acquiring LancoInfratech’s 1,200-MW Udupi power plant for aboutRs. 6,000 crore in August, went on to acquire Avantha Power’s 600-MW Korba West project in Chhattisgarh forRs. 4,200 crore in November.
This makes the Adani group the top private-sector player, with a total installed capacity of 11,040 MW.
Similarly, in November, JSW Energy also inked a deal to buy two hydroelectric projects, which have a combined capacity of 1,391 MW, from Jaiprakash Power Ventures forRs. 9,700 crore in cash.
Tata power became the third domestic utility this year to join the ongoing consolidation race in the power sector by acquiring the signing a share purchase agreement with Ideal Energy Project (IEPL) to acquire the latter’s 540-Mw thermal power plant near Nagpur in Maharashtra from IRB group firm Ideal Energy Projects. The deal is estimated to be worth Rs 3,500 crore. With this acquisition, the company’s generation capacity increases to 8,885 Mw.
With this, the Indian power sector has seen near $4-billion (Rs 24,000-crore) consolidation in the last four months, as assets in the industry move from weaker to stronger hands.
Kameswara Rao, Leader-Energy, Utilities and Mining, PwC India, said a strong M&A deal flow is healthy in an economy as it brings new owners who are better placed to deal with an asset’s specific problems.
Though this is not so easy in the power sector given its regulated nature, current deals reflect the financing capabilities of players — they have deeper pockets.
SC Natu, Senior Vice-President, Power Division, Mitcon Consultancy & Engineering, a technical consultancy, says electricity demand will improve once growth picks up, though fuel and tariff issues have to be reckoned with.
It is well known that infra projects have been hamstrung by the decline in growth as their cash flows were worked out when GDP was over 8 per cent.
With growth stuttering and cash-flow projections going awry, the project economics, too, became unviable.
Harish HV, Partner, Grant Thornton India, said there are many projects that are incomplete and stranded for various reasons, including shortage of fuel.
But given the government’s intent to resolve the coal issue, the trouble for the power sector on this front could be temporary.
Tata Power, which has lost its top slot to Adani, is keen to make more acquisitions. Its latest acquisition will increase the company’s spread in thermal power space. IEPL is promoted by the Mhaiskar family of IRB Infrastructure Developers. It has been on the block since 2011. However, the sale was stuck because of the controversy surrounding the then Bharatiya Janata Party (BJP) president Nitin Gadkari, and his relationship with IRB Infrastructure Developers and its founders, the Mhaiskar family.
The acquisition comes at a time when Tata Power is exploring a joint venture partnership with ICICI Securities to buy out troubled power assets. Motilal Oswal researchers say there are reports that discussions are on for the sale of Jhabua Power (a subsidiary of Avantha Power & Infra) to a Tata Power–ICICI Ventures consortium.
Tata Power has a total operational capacity of 8,613 Mw, which includes 7,647 Mw of thermal power. Another 800 Mw generation capacity is under execution and most of it is renewable energy space.
Tata Power reported a consolidated net loss of Rs 260 crore( including share of minority interest ) in FY14, its second highest in the past 10 years. “It is our constant endeavour to maximise stakeholder value in line with our vision,” said Anil Sardana managing director and CEO of Tata Power. The firm has set a target of generating 18,000 Mw by 2022 and has projects of 3,000 Mw capacity under various stages of execution. Tata Power shares rose 1.7 per cent to Rs 86.85 apiece on the BSE on Wednesday, while the benchmark Sensex gained 0.15 per cent to 27,837.87 points. In 2007, Tata Power had bought a 30 per cent stake in PT Kaltim Prima Coal and PT Arutmin Indonesia (Arutmin) and the related trading company owned by PT Bumi Resources for Rs 4,740 crore. Tata Power has lost the motivation to continue with its investment in Indonesian coal mines as international coal prices dropped. The company sold a five per cent stake in the Kaltim Prima Coal mines along with a 30 per cent stake in related power infrastructure companies in July for $250 million. It can sell the remaining 25 per cent stake in the coal mines, which is valued at a little over $1 billion ( Rs 6,000 crore).
“Clearly, there have been stressed assets in the market and now they are available at reasonable prices as banks tighten the noose on their promoters,” says Ajay Saraf, executive director at homegrown investment bank, ICICI Securities. Many infrastructure companies diversified into power over the past decade, sensing good opportunities. These include Jaiprakash Associates, IRB Infrastructure Developers and GMR Infrastructure, which has put its 600-Mw thermal power plant in Maharashtra up for sale. The infrastructure companies now want to get out of power as their balance sheets are overstretched and lenders are pressing them to de-leverage. The consolidation was long awaited and it gained momentum only after the new government was formed. Its policy initiatives have made established power companies optimistic. Also, the rally on the stock markets has improved their ability to raise funds. “You can expect accelerated consolidation in the industry once the coal auction is completed next year,” says Saraf. After the auction, the winners will see if they can use the awarded coal blocks for other assets in the vicinity and that will accelerate the consolidation drive. Early this year, public sector utility NTPC said it had been approached to buy a total of 55,000-Mw capacity. This is estimated to be valued around Rs 4 lakh-crore.
“Earlier, fuel was the major issue coming in the way of consolidation in the industry,” says Bhargav Buddhadev, power analyst with Ambit Capital. “With Coal India seeing near 7.5 per cent growth in production volume and the coal mine auction in the offing, the drive will certainly accelerate,” he added.
This makes the Adani group the top private-sector player, with a total installed capacity of 11,040 MW.
Similarly, in November, JSW Energy also inked a deal to buy two hydroelectric projects, which have a combined capacity of 1,391 MW, from Jaiprakash Power Ventures forRs. 9,700 crore in cash.
Tata power became the third domestic utility this year to join the ongoing consolidation race in the power sector by acquiring the signing a share purchase agreement with Ideal Energy Project (IEPL) to acquire the latter’s 540-Mw thermal power plant near Nagpur in Maharashtra from IRB group firm Ideal Energy Projects. The deal is estimated to be worth Rs 3,500 crore. With this acquisition, the company’s generation capacity increases to 8,885 Mw.
With this, the Indian power sector has seen near $4-billion (Rs 24,000-crore) consolidation in the last four months, as assets in the industry move from weaker to stronger hands.
Kameswara Rao, Leader-Energy, Utilities and Mining, PwC India, said a strong M&A deal flow is healthy in an economy as it brings new owners who are better placed to deal with an asset’s specific problems.
Though this is not so easy in the power sector given its regulated nature, current deals reflect the financing capabilities of players — they have deeper pockets.
SC Natu, Senior Vice-President, Power Division, Mitcon Consultancy & Engineering, a technical consultancy, says electricity demand will improve once growth picks up, though fuel and tariff issues have to be reckoned with.
It is well known that infra projects have been hamstrung by the decline in growth as their cash flows were worked out when GDP was over 8 per cent.
With growth stuttering and cash-flow projections going awry, the project economics, too, became unviable.
Harish HV, Partner, Grant Thornton India, said there are many projects that are incomplete and stranded for various reasons, including shortage of fuel.
But given the government’s intent to resolve the coal issue, the trouble for the power sector on this front could be temporary.
Tata Power, which has lost its top slot to Adani, is keen to make more acquisitions. Its latest acquisition will increase the company’s spread in thermal power space. IEPL is promoted by the Mhaiskar family of IRB Infrastructure Developers. It has been on the block since 2011. However, the sale was stuck because of the controversy surrounding the then Bharatiya Janata Party (BJP) president Nitin Gadkari, and his relationship with IRB Infrastructure Developers and its founders, the Mhaiskar family.
The acquisition comes at a time when Tata Power is exploring a joint venture partnership with ICICI Securities to buy out troubled power assets. Motilal Oswal researchers say there are reports that discussions are on for the sale of Jhabua Power (a subsidiary of Avantha Power & Infra) to a Tata Power–ICICI Ventures consortium.
Tata Power has a total operational capacity of 8,613 Mw, which includes 7,647 Mw of thermal power. Another 800 Mw generation capacity is under execution and most of it is renewable energy space.
Tata Power reported a consolidated net loss of Rs 260 crore( including share of minority interest ) in FY14, its second highest in the past 10 years. “It is our constant endeavour to maximise stakeholder value in line with our vision,” said Anil Sardana managing director and CEO of Tata Power. The firm has set a target of generating 18,000 Mw by 2022 and has projects of 3,000 Mw capacity under various stages of execution. Tata Power shares rose 1.7 per cent to Rs 86.85 apiece on the BSE on Wednesday, while the benchmark Sensex gained 0.15 per cent to 27,837.87 points. In 2007, Tata Power had bought a 30 per cent stake in PT Kaltim Prima Coal and PT Arutmin Indonesia (Arutmin) and the related trading company owned by PT Bumi Resources for Rs 4,740 crore. Tata Power has lost the motivation to continue with its investment in Indonesian coal mines as international coal prices dropped. The company sold a five per cent stake in the Kaltim Prima Coal mines along with a 30 per cent stake in related power infrastructure companies in July for $250 million. It can sell the remaining 25 per cent stake in the coal mines, which is valued at a little over $1 billion ( Rs 6,000 crore).
“Clearly, there have been stressed assets in the market and now they are available at reasonable prices as banks tighten the noose on their promoters,” says Ajay Saraf, executive director at homegrown investment bank, ICICI Securities. Many infrastructure companies diversified into power over the past decade, sensing good opportunities. These include Jaiprakash Associates, IRB Infrastructure Developers and GMR Infrastructure, which has put its 600-Mw thermal power plant in Maharashtra up for sale. The infrastructure companies now want to get out of power as their balance sheets are overstretched and lenders are pressing them to de-leverage. The consolidation was long awaited and it gained momentum only after the new government was formed. Its policy initiatives have made established power companies optimistic. Also, the rally on the stock markets has improved their ability to raise funds. “You can expect accelerated consolidation in the industry once the coal auction is completed next year,” says Saraf. After the auction, the winners will see if they can use the awarded coal blocks for other assets in the vicinity and that will accelerate the consolidation drive. Early this year, public sector utility NTPC said it had been approached to buy a total of 55,000-Mw capacity. This is estimated to be valued around Rs 4 lakh-crore.
“Earlier, fuel was the major issue coming in the way of consolidation in the industry,” says Bhargav Buddhadev, power analyst with Ambit Capital. “With Coal India seeing near 7.5 per cent growth in production volume and the coal mine auction in the offing, the drive will certainly accelerate,” he added.
Similar Posts